Employers that have done the best job of managing annual increases in health care costs are pulling out ahead of their peers, according to the findings of the 12th annual National Business Group on Health/Watson Wyatt Survey.

These employers also are designing benefit plans that go beyond employee cost-sharing and involve appropriate use of financial incentives, effective information delivery, quality of care initiatives, employee health and productivity management programs and data mining, the survey found.

"If you look at the spread between the poor performers and the best performers, the gap is increasing," said Ted Nussbaum, practicing director of health care consulting North America at Watson Wyatt Worldwide in Stamford, Conn.

The two-year average trend for the best performers in this year's survey was just 2.5%, compared with 11% for poor performers, while in last year's survey the differential was 3% for best performers vs. 11% for poor performers and in 2005 it was 5% for best performers vs. 15% for poor performers, Mr. Nussbaum pointed out.

"This suggests that the things the best performers are doing are producing better results," he said.

In particular, the best performers are not relying on employee cost-sharing as a primary cost reduction strategy, according to Mr. Nussbaum.

"One continuous finding that we've had for the last several years is that...substantial additional cost-sharing is not producing better results," he said. Rather, "it's the relationship between plan design and cost-sharing that incents employees to think about their health care behaviors and become better consumers of health care."

For example, best performers are 17% more likely to offer compelling financial incentives to encourage employee education and participation and 11% more likely to effectively deliver health care information, according to the survey of 573 large employers.

Best performers also are allowing their health care cost management strategies to evolve as they learn more about the outcomes of their previous attempts at managing costs, according to Mr. Nussbaum.

In last year's survey, best performers found that they could lower health care costs by encouraging employees to seek care from "high-performance networks," defined as a subset of doctors and hospitals in a particular provider network that have proved they provide consistently high quality care on a cost-effective basis.

However, this year, the best performing employers are finding not all providers in a "high-performance network" can produce the same results for all types of procedures. In other words, "quality is procedure-specific," Mr. Nussbaum explained. As a result, many best performing employers are using high-quality, cost-effective providers similar to the way they use Centers of Excellence for transplants, only to treat other conditions, he said.

Some other findings of the survey, which was released Thursday at the 2007 Business Health Agenda sponsored by the National Business Group on Health in Washington, were:

• The number of employers offering consumer-directed health plans continues to grow, from 33% in 2006 to 38% in 2007. However, employee enrollment in CDHPs has increased only 1% since last year, to 8%.Watson Wyatt noted that such arrangements generally include a high-deductible plan coupled with a personal savings account such as a health savings or health reimbursement arrangement.

• Five percent of employers are offering CDHPs on a total replacement basis, and another 4% plan to do so in 2008.

• Median health care cost increases for health care expenses were 8% in 2006--in line with employers' expectations.